The latest seasonally adjusted trade figures for the UK, released this week, give a clear indication of the weak state of both the global and the UK economies. The trade gap widened from £7.8bn in the first quarter of 2012 to £11.2bn, with the June trade gap of £4.3bn the highest since modern records began. While imports remained fairly static, export volume fell by 3.3% on the previous quarter. While changes in public holidays and the Diamond Jubilee affected trade movement, this provides little comfort to the Chancellor who had been hoping – possibly relying – on an export led recovery. The most desirable movement in trade is for both imports and exports to increase – indicating growing domestic and global economies, and all the benefits that this brings. However, the latest figures are moving in the wrong direction, with little evidence of any imminent change.
Weak imports are, of course, in line with what typically happens in a recession – given that imports are largely a function of domestic demand. Declining exports are, on the other hand, at best a symptom of a stalling global economy, and, at worst a sign that UK firms are increasingly unable to compete in the global economy. Despite Europe’s current problems, the largest falls in exports were to non-EU countries, where oil, chemical and motor exports all fell, with demand shrinking for these commodities in China and the USA. While recessions come and go, poor productivity and inadequate price and non-price competitiveness are long-term problems that recessions merely highlight. Some may argue that the much lauded supply-side reforms of the last 30 years have finally run their course. Not surprising then that the spotlight is beginning to fall on technology policy and infrastructure improvements – as well as calls for a national investment bank – to help get the supply-side moving again. The London Olympics have shown that the UK can get things done when it needs to. However, as witnessed post-Sydney and Athens, Games-euphoria is, in itself, not a sufficient condition for economic progress. We can only hope that the energy, enthusiasm, creativity and teamwork demonstrated so admirably during the Games will be translated into improved national economic performance.